HSBC has overhauled its leadership team as part of succession plans for boss Noel Quinn, while reporting higher than expected profits in the third quarter.
The bank said on Tuesday that adjusted pretax profit was $6.5 billion (€6.6 billion), compared with $5.5 billion a year earlier, surpassing analyst estimates of $6 billion as a global rise in interest rates helped spur higher returns.
The solid quarterly results come despite recent turmoil in the UK’s foreign exchange and government bond markets, and will serve to bolster HSBC’s defence against calls from its largest shareholder, Ping An, to split its Asian and western operations.
While it has repeatedly rebuffed Ping An’s demands, the bank is working to reshape its global network to focus on Asia and other high-growth regions.
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In a surprise move, HSBC also announced it was replacing Ewen Stevenson as chief financial officer at the end of the year. Georges Elhedery, co-head of global banking and markets, is to take over the position, setting him up to potentially succeed Quinn as chief executive.
Greg Guyett, formerly Elhedery’s co-chief, has been made chief executive of global banking and markets with immediate effect.
“My ambition is to provide the board with ... options for potential succession,” Mr Quinn said. However, he added: “I’m not stepping down any time soon, I’m here for many years to come.”
HSBC upgraded guidance for net interest income to $32 billion this year and at least $36 billion the next. Mr Quinn said: “Next year will be [the] first year we’ll report return on tangible equity above 12 per cent.”
However, the bank maintained its guidance for a dividend payout ratio of 50 per cent in 2023 and 2024.
Shares fell more than 6 per cent in early morning trading on Tuesday. Ian Gordon, analyst at Investec, said: “I’m surprised and disappointed that Ewen is leaving. He has brought much-needed credibility to HSBC’s cost discipline and financial targets after a decade of persistent disappointment. A peculiar decision at this juncture, and regrettable for the business.”
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Pretax reported profit for the third quarter was $3.1 billion, down from $5.4 billion a year ago, although it came in well above analyst expectations of $2.5 billion. The drop was largely the result of a hit from the sale of its French retail business and a $1.07 billion provision for expected credit losses, reversing a $659mn release made in the same period a year ago.
Mr Stevenson said the “weak” China real estate market and a “mild recession” in the UK were the main drivers of the provision.
After adjusting for impairments and foreign exchange impacts, revenues rose 28 per cent from a year ago to $14.3 billion, rising across all businesses thanks to interest rate increases.
HSBC has faced pressure this year from Ping An, which holds a more than 8 per cent stake in the company and argues that spinning off the bank’s Asia business would create up to $35 billion of additional market value.
Asia accounted for more than 55 per cent of HSBC’s $6.6 billion in adjusted pretax profits in the third quarter. Mr Quinn said: “We continue to have constructive dialogue with Ping An.”
Ping An reiterated on Tuesday that HSBC should focus more heavily on Asia to boost returns, rather than rely on rising interest rates, according to people familiar with the situation. The insurer also said the bank should “pay attention to geopolitical risks”, the people said.
HSBC is in the process of exiting Greece and this month said it was in the early stages of a strategic review of its profitable Canadian business that could lead to a $9 billion sale.
However, Mr Quinn quashed speculation that the bank was going to offload its business in Mexico. “Mexico will not be up for sale soon,” he said.
“We’re seeing that business activity grow. It’s a business that’s producing good returns, and one we believe can produce even higher returns and profit growth.”
The bank’s common equity tier one ratio – a measure of balance sheet strength – dipped 0.2 percentage points to 13.4 per cent from the previous quarter, partly as a result of the French retail bank sale.
– Copyright The Financial Times Limited 2022
